A large proportion of greenhouse gas emissions in the UK emanate from private rented buildings and the government is obliged under various UK and EU legislation to implement measures to improve the energy efficiency of buildings in order to reduce our carbon footprint.

One of the key changes brought about by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the Regulations) was the requirement for minimum energy efficiency standards (MEES) to be met before private rented accommodation can be let. The minimum required standard is energy performance certificate (EPC) band E – therefore any property in band F or G will be affected.

MEES

If a property fails to achieve the required minimum level of energy efficiency the property’s landlord is prohibited from:

• granting, extending or renewing a tenancy of a substandard property from 1 April 2018;
• continuing to let a substandard domestic property from 1 April 2020; or
• continuing to let a substandard non-domestic property from 1 April 2023,

Furthermore, the landlords must undertake certain specified energy efficiency improvements which are identified as recommended improvements in a green deal report, a recommendation report or a surveyor’s report. However, these improvements may not qualify if they are likely to have a negative impact on the fabric or structure of the property. 

In the event a property falls below the MEES it is worth seeking professional and independent advice on what improvements can be made, whether these qualify for the purpose of the Regulations and whether their installation will negatively impact the property.

From 1 April 2018 if a local trading standards officer believes a landlord is or has been in the preceding 18 months letting a property in breach of the Regulations they will be able to impose a financial and/or publication penalty on the landlord:

• the financial penalty – the exact figure will depend on the property and the breach but can be as much as £5,000 for domestic property (subject to a £5,000 cap per property for multiple breaches of the regulations) or £150,000 for non-domestic property (no cap);

• the publication penalty – a local trading standards officer can also publish in the PRS exemptions register for a minimum of 12 months the landlord’s name and address (where the landlord is not an individual), the address of the property, details of any breaches and the amount of any financial penalty imposed.

In particular, a breach of the Regulations does not invalidate a tenancy. Therefore the landlord may still be the subject of enforcement action but cannot force the tenant to vacate the property or terminate the tenancy in order to comply with the MEES.

Exemptions

Fortunately, in addition to certain properties or tenancies that are not covered by the Regulations, several exemptions are also available. These are as follows:

• the consent exemption – if, within the preceding 5 years, the landlord has been unable to increase the EPC to band E as a result of either:

1. the tenant refusing to consent to or providing the necessary confirmation of any improvements being made; or
2. despite the landlord’s reasonable efforts, any required third party consent has been refused or granted subject to a condition the landlord cannot reasonably comply, then the landlord will be exempt from the MEES.

• the devaluation exemption – if, within the preceding 5 years, the landlord has been unable to improve the EPC to band E because they have obtained a report from an independent surveyor stating that the improvements would result in a reduction of more than 5% of the market value of the property the landlord will be similarly exempt.

• the temporary exemption – if certain circumstances apply, a landlord will be exempt from the MEES for six months after the date on which the landlord becomes or continues to be the landlord of the property or, if applicable, six months from the date of a court order granting a lease. These circumstances include:

1. the grant of a lease pursuant to a contractual obligation,
2. the landlord having been a guarantor, or a former tenant, who has exercised the right to obtain an overriding lease of a property;
3. the deemed creation of a new lease by operation of law;
4. the grant of a new business tenancy pursuant to the LTA 1954; or
5. the grant of a lease by order of the court.

It is important to note that the exemptions only provide temporary relief and landlords will still need to consider what changes can be made to meet the MEES. 

Furthermore, in order to rely on an exemption, the landlord must have registered with the PRS exemptions register. Although the PRS exemptions register was originally intended to be available from 1 October 2016, further regulations are before parliament to delay its introduction until 2017.

Impact

Although the MEES are being phased in from 2018 it is important for both landlords and tenants to assess as soon as possible what impact these standards may have – particularly for tenancies that extend beyond 2020 and 2023. 

A landlord may wish to enhance their rights to ensure they can implement any necessary improvements or share the responsibility for any improvements with the tenants. Similarly, prospective tenants may want the landlord to carry out certain improvements before the tenancy is granted to minimise any future inconvenience or to allow the tenants to underlet without fear of being in breach of the MEES.